In this memorandum opinion addressing defendants’ motion for summary judgment, the Court of Chancery dismissed plaintiffs’ claim that a reverse triangular merger constituted an assignment of rights in breach of a contractual anti-assignment provision. The opinion resolves uncertainty that followed a 2011 decision from the same case in which the Court, on a motion to dismiss, declined to rule on whether a change of control accomplished through a reverse triangular merger constitutes an assignment “by operation of law or otherwise.”

In 1992, defendant Roche Holding Ltd. obtained from IGEN International, Inc. an exclusive but narrow license to use certain electrochemiluminescent, or ECL, technology (the “1992 License”). In 1995, IGEN entered into a joint venture with plaintiff Meso Scale Technologies LLC (“MST”) to form Meso Scale Diagnostics, LLC (“MSD” and, with MST, “Meso”) to develop and promote the ECL-related technology. As part of the venture, IGEN granted MSD exclusive rights to certain broadly-defined ECL intellectual property. According to MSD, those rights included a “springing right” to acquire any exclusive rights then held by a third party, such as those granted Roche under the 1992 License, should those third-party rights terminate.

In 2003, following a federal court verdict that Roche had violated the narrow restrictions of the 1992 License, IGEN terminated the license. Roche immediately sought to reacquire rights to the ECL technology and, as part of a broad transaction comprised of numerous agreements (the “2003 Transaction”), obtained from IGEN a second, non-exclusive license (the “Roche License”). Roche also acquired IGEN in the 2003 Transaction but, before it did, IGEN transferred all of its intellectual property assets—including its ECL patents and related licensor rights and obligations—to a newly-created, publicly held entity, defendant BioVeris Corporation. To facilitate the 2003 Transaction, Roche, IGEN, BioVeris, and Meso entered into a Global Consent and Agreement (the “Global Consent”) through which Meso consented and granted waivers with respect to consummation of the Transaction and to the Transaction-related agreements. The Global Consent contained the anti-assignment clause at the center of this litigation. The clause provided that none of “the rights, interests or obligations under [the Global Consent] shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties ….”

In 2007, Roche, seeking to acquire full rights to the ECL-related intellectual property, acquired BioVeris through a reverse triangular merger (the “BioVeris Merger”) in which Roche subsidiary Lili Acquisition Corp. merged with and into BioVeris. BioVeris emerged as the surviving entity and Roche as its sole stockholder. As noted by the Court, the effect of the BioVeris Merger was that “all properties, rights, privileges, powers and franchises” of BioVeris and Lili vested in BioVeris, and “all claims, obligations, debts, liabilities and duties” of BioVeris and Lili became the claims, obligations, debts, liabilities and duties of BioVeris.

Meso thereafter brought this action, alleging that, as a result of the BioVeris Merger, Roche and its affiliates breached the Global Consent’s anti-assignment clause. Meso contended that, pursuant to the anti-assignment clause, BioVeris could not assign any of the rights arising from the 2003 Transaction without Meso’s prior written consent and that, lacking consent, defendants breached the clause because the BioVeris Merger constituted an assignment of BioVeris’s intellectual property rights “by operation of law or otherwise.”

In its 2011 decision refusing to dismiss Meso’s claim, the Court, finding no Delaware case law on point, declined to rule that a reverse triangular merger does not, as a matter of law, constitute an assignment “by operation of law.” Addressing the issue now on summary judgment, the Court dismissed the claim, noting that, “[g]enerally, mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.” The Court held that the phrase “by operation of law or otherwise” made clear the parties did not intend the anti-assignment clause to apply to reverse triangular mergers. In so ruling, the Court relied upon language in Section 259(a) of the DGCL, which provides that the separate existence of all of the constituent corporations to any merger or consolidation, “except the one into which the other or others of such constituent corporations have been merged,” shall cease and “the rights, privileges, powers and franchises of each of said corporations … shall be vested in the corporation surviving or resulting from such merger or consolidation.” The Court noted that the language of Section 259(a), and other Delaware cases determining that Section 259(a) results in the transfer of a non-surviving corporation’s rights and obligations to the surviving corporation by operation of law, suggested that the surviving corporation would not be deemed to have effected any assignment.

The Court found the “vast majority of commentary” discussing reverse triangular mergers supported its conclusion and, in light of such commentary, that the reasonable expectation of the parties to the Global Consent could only have been that the anti-assignment clause would not cover reverse triangular mergers. The Court rejected Meso’s argument that the BioVeris Merger was nothing more than an assignment of BioVeris’s intellectual property rights to Roche because, as a result, Roche effectively owned all of those rights. The Court held that this argument ignored Delaware’s longstanding doctrine of independent legal significance, which permits an action taken legally under one section of the DGCL even if it causes the same result as an action that would be impermissible if taken under another section of the DGCL. Applied here, the doctrine allowed the Court to look only to the legality of the reverse triangular merger and to measure its result—i.e., whether it effected an assignment “by operation of law”—accordingly.

The Court expressly declined to follow a contrary ruling in the Northern District of California’s 1991 decision SQL Solutions, Inc. v. Oracle Corp., which applied California law to hold that reverse triangular mergers do result in assignments by operation of law. The Court noted that, among other things, the California court’s decision conflicts with Delaware law that a stock acquisition or mere change in the legal ownership of a business does not, of itself, result in an assignment by operation of law of the contractual rights and duties of a corporation. The Court also distinguished prior Delaware cases involving forward triangular mergers, where the target company was not the surviving entity.

The Court thus granted summary judgment with respect to Meso’s claim for breach of the anti-assignment clause. The Court refused to dismiss Meso’s other claim in the litigation, that Roche had breached certain restrictions in the 2003 Roche License, on the grounds that it presented material issues of fact requiring trial.